(c) Suppose px increases by 50%. What is Joe’s new optimal consumption bundle? Calculateboth the Income Effect and the Substitution Effect.
Question
Solution 1
Given that px increases by 50%, the new px = 2 * 1.5 = 3.
Step 1: Calculate the new optimal consumption bundle
Substitute the new px into the equations we derived for the optimal consumption bundle (x*, y*).
x* = I/(px + βpx) x = 24/(3 + 23) x = 24/9 x* = 8/3
y* = (βpx/αpy)I/(px + βpx) y Knowee AI StudyGPT is a powerful AI-powered study tool designed to help you to solve study prob
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Knowee AI StudyGPT is a powerful AI-powered study tool designed to help you to solve study problem.
Knowee AI StudyGPT is a powerful AI-powered study tool designed to help you to solve study problem.
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